New Labour think-tank warns Blair that pensions strategy in danger of 'unravelling'

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Today's young must not become the poverty-struck pensioners of tomorrow

Outlook: pensions harvest

The Government's pensions policy came under attack yesterday from a centre-left think- tank, the Institute for Public Policy Research (IPPR).

An interim report on pensions and long-term care criticises the Government's approach and said there was concern that its strategy was now "unravelling".

The IPPR attacked the complexity and cost of the proposed pension credit, and cast doubt on whether stakeholder pensions would reach their target group. It also raises questions about the role of the basic state pension, the long-term future of the pension credit, and the consequences of a majority of the population being means-tested in retirement. While the Department for Work and Pensions rejected suggestions that its pensions and long-term care provisions had not been properly thought through, a spokeswoman welcomed the report as "a valuable contribution to the debate".

She added that the Government was undertaking a raft of initiatives and pledged: "There will be further radical reform."

The report warns: "There is increasing concern about stakeholder pensions. The largest question mark is over their ability to reach the intended target group – roughly those on between half average and average earnings. "Even granted that individuals [particularly at the lower end of the target group] are able to understand the complex decision about opting out of the state second pension, many could not afford to do so. Many are likely to bank on adequate state funding for their retirement income."

Stakeholder pensions were introduced in April, enabling people to save up to £3,600 a year before tax relief with approved providers, which can charge no more than one per cent commission a year.

In June, the Queen's Speech said that, from 2003, a pension credit would replace income support for pensioners. This will provide a higher income guarantee for the poorest pensioners and a payment to reward pensioners with modest savings or a second pension. But, the IPPR says, "the Government Actuary's Department should be required urgently to cost the pension credit alongside the more generous minimum income guarantee."

The report recommends that pension schemes be made compulsory to encourage saving, and recommends raising the national retirement age to 67 or 70 to fund increases in the basic state pension.

On long-term care, the report claims that "surveys suggest that public support for the Government's position is low".

MPs said the report was proof that the Government policy was confused. Frank Field, a Labour MP and former social security minister, said: "We now have to go back to the drawing board and, unfortunately for the Government, take some unpleasant decisions if we are going to implement reforms which are going to last for 40 to 60 years."

He told BBC Radio 4's Today programme: "Stakeholder pension reform as the Government has conceived it will help some people, but not the group that was originally envisaged."

Jacqui Lait, the Tories' spokeswoman on pensions, said: "Labour's pension policies are confused and unpopular. Stakeholder pensions are not reaching the people they are aimed at and the pension credit will force over half pensioners on to the means-test."

Professor Steve Webb, the Liberal Democrats' work and pensions spokesman, said: "The stakeholder pension scheme is clearly failing. The Government must act sooner rather than later to introduce a degree of compulsion into the provision of second pensions."

Gordon Lishman, the director general of Age Concern England, said: "Although the Government has announced some positive initiatives, many questions about future retirement provision remain unanswered .... We will continue to call for a basic state pension of at least £90 to ensure the current generation of pensioners avoid the risk of poverty."